Amidon v. Kane

Opinion by

Judge Wilkinson,

These three cases are all actions in Equity instituted in this Court to test the constitutionality of Arti*370ele III of the Tax Reform Code of 1971, adopted March 4, 1971, Act No. 2, 72 P.S. 7107 et seq., P.S. Pennsylvania Legislative Service, session of 1971, P. 5, et seq.

We can dispose of the Tilghman case (255 Commonwealth Docket 1971) unanimously and with dispatch. The only attack made by the plaintiffs in that case, although the same ground is used inter alia in the other cases, on the constitutionality of Article III of the Tax Reform Code of 1971, is that it was passed by the Legislature without the benefit of a budget submitted by the Governor. Section 12 of Article VIII of the Pennsylvania Constitution provides that the Governor shall submit annually to the General Assembly “at a time set by law” a balanced operating budget. It is specifically provided “if estimated revenues and available surplus are less than proposed expenditures, the Governor shall recommend specific additional sources of revenue sufficient to pay the deficiency of the estimated revenue to be derived from each source”. This is a new provision in the Constitution and counsel agree it presents a question of first impression. Although the question is of first impression, it is not a difficult one to resolve. First, the Constitution refers to the duty of the Governor to perform in this regard “at the times set by law”. The time set in Section 602 of the Administrative Code, Act of April 9, 1929, P. L. 177, as amended, 71 P.S. 222 is “as soon as possible after the organization of the General Assembly”. There is nothing in this record to show that this provision of the Constitution and the Act of Assembly was not complied with by the Governor. But, be that as it may, counsel for plaintiffs do not point to any provision in the Constitution which limits the General Assembly’s power to adopt tax programs until the Governor has submitted his budget. Indeed, there is a constitutional limitation on the authority of the Legislature in mak*371ing appropriations. This limitation is that the appropriation may not exceed “the actual estimated revenues and surplus available in the same fiscal year”. See Section 13(a) of Article VIII. Manifestly, had the framers of the Constitution intended any such similar limitation to apply to the authority to pass new taxes being conditioned on the submission of a budget by the Governor, they would have so provided.

The issues raised by the Amidon and Concerned Taxpayers cases (260 and 275 Commonwealth Docket 1971) are much more substantial, but the majority of the Court must dispose of them in the same manner. One attack made on Article III of the Tax Reform Code of 1971 is that in adopting the definition of “taxable income” to mean the same as defined in the Internal Revenue Code, the General Assembly has made an unauthorized delegation of authority to the Congress which adopts and amends the Internal Revenue Code from time to time. In theoiy and logic, this argument may have had merit at one time. It may have merit in the future if Congress amends the Internal Revenue Code to redefine taxable income and the Pennsylvania Legislature does not affirmatively amend its Act to either adopt the new definition or take such other action as is appropriate. Such a case is not before us. Any doubt as to the constitutionality of this provision has been put to rest by the Supreme Court of Pennsylvania in Commonwealth v. Curtis Publishing Co., 363 Pa. 299, 69 A. 2d 410 (1949), and Commonwealth v. Warner Bros. Theatre, Inc., 345 Pa. 270, 27 A. 2d 62 (1942).

Another attack is made on the constitutionality of Article III of the Tax Reform Code of 1971 on the basis that the awarding of the vanishing tax credit to “low income” individuals and the credit given for thirty percent (30%) of local taxes other than taxes on *372real estate, realty transfers or amusements, constitutes unconstitutional discrimination amounting to non-uniformity. We cannot agree. The Legislature is given wide latitude in classification with regard to tax matters : “In the light of these considerations we can only hold, as already stated, that, so far as concerns the classes into which articles may be arranged for purposes of taxation, the matter is one for the legislature and not for the courts; and the latter not only have no duty to classify but they are and should be forbidden to interfere with the legislative classification unless they can say with certainty that it is purely illusory, clearly intended as an evasion of the Constitution.” Heisler v. Thomas Colliery Co., 274 Pa. 448, 459, 118 A. 394 (1922). See also Philadelphia v. Depuy, 431 Pa. 276, 244 A. 2d 741 (1968), Crosson et al. v. Downingtown Area School District, 440 Pa. 468, 270 A. 2d 377 (1970) (upholding an exemption for minors on the basis of the likelihood of low income to minors as being a basis for separate classification). The legislative authority to classify for taxation is given a wider latitude than it is in the area of regulatory legislation. See Commonwealth v. Life Assurance Co. of Pennsylvania, 419 Pa. 370, 214 A. 2d 209 (1965). The same principle obtains in the application of the Federal Constitution to the states. See Chicago, Burlington and Quincy R. Co. v. McQuire, 219 U.S. 549 (1911).1

There remains the very substantial question of whether Article III of the Tax Beform Code of 1971 violates Article VIII, Section 1, of the Pennsylvania Constitution for lack of uniformity: “All taxes shall be *373uniform, upon the same class of subjects, within the territorial limits of the authority levying the tax, and shall be levied and collected under general laws.” There is no longer any doubt that the uniformity clause of the Pennsylvania Constitution applies to a tax on income, Kelley v. Kalodner, 320 Pa. 180, 181 A. 598 (1935); or an occupation and occupational privilege tax, Saulsbury v. Bethlehem Steel Co., 413 Pa. 316, 196 A. 2d, 664 (1964). There can be little if any doubt but for the constitutional requirement of uniformity the Legislature would certainly have considered and perhaps have adopted a graduated income tax in the classic form. The question here at issue is whether the Legislature has, in effect, done the same thing with the use of the federal base which “builds in” many deductions and exemptions which apply to some and not to others as well as including the provision for the vanishing tax credit and the partial credit for the payment of certain local taxes. We think not.

The legislative intent is expressly set forth in Section 301 of the Act: “The Legislature, in imposing a flat rate tax on income defined in this article, hereby declares its legislative intent and policy to provide a fair and practical method of taxation and to effectuate an income tax which shall constitutionally conform to the uniformity provisions of section 1, of Article VIII, of the Constitution, by utilizing and uniformly applying in this article those terms, definitions, classifications and other provisions of the Federal Internal Bevenue Code of 1954, as amended, as they relate to the Federal Income Tax in individuals, being the same code which the General Assembly has heretofore employed in the Pennsylvania ‘Corporate Net Income Tax’ and ‘Corporation Income Tax’ acts relating to the imposition of income taxes on corporations.” There is no testimony in this record that would show that *374the Legislature, if the classifications are reasonable, has not accomplished this intent. Indeed, neither is there any evidence that the classifications are not reasonable.

In drafting this legislation, the Legislature appears to have followed the guidelines set forth in Turco Paint and Varnish v. Kalodner, 320 Pa. 421, 184 A. 2d 37 (1936), when the Supreme Court of Pennsylvania approved a corporate net income tax based on the corporation’s net income as reported to the federal government. The plaintiffs attempt to distinguish this case from the instant case in that the Turco Paint case was a privilege tax. We do not concur that this constitutes a valid distinction but if it did, the Legislature has followed that decision with such meticulous care that it declares this tax to be on the privilege of “receiving, earning or otherwise acquiring income.” In our opinion, this Court, approaching the case using the Turco Paint case as its frame of reference, can only conclude that Article III of the Tax Reform Code of 1971 conforms and complies with the uniformity requirements of the Pennsylvania Constitution.

Finally, it is argued that it constitutes unconstitutional non-uniformity to give credit for local taxes paid in years after calendar 1971 limited to an amount not to exceed thirty percent (30%) of the tax paid in 1971. Suffice it to say that if this provision is not amended, this aspect can be considered in a proper case contesting the provision in years subsequent to 1971. It certainly is not at issue at this time.

Although we think that the case will stand by itself, if the validity of the Act needs any underpinning, it is more than amply provided by the well-established principles clearly restated by the Supreme Court of Pennsylvania as recently as January 7th of this year when, in Wanamaker v. Philadelphia School District *375et al., 441 Pa. 567, 274 A. 2d 524 (1971), it stated: “The challengers of the constitutionality of state or local taxation bear a heavy burden in their efforts to overturn such legislation.” In our opinion, the challengers here have not met their burden. In the future, in some particular case, with a record before it of the tax application in that case, it may be that a specific clause in this taxing statute would need careful examination by a court and it might ultimately be determined that in that instance uniformity, although intended, was not achieved. There is nothing in the record of this case requiring us to come to such a conclusion.

The complaints are dismissed.

At the risk of inappropriately injecting humor into a situation that to many would be more appropriate for tears than laughter, it has been observed that the logic of the classification for a tax base by the legislature follows the reasoning of an Irishman at Donnybrook Fair — when you see a head, you hit it